The pros and cons of different ETH staking solutions
Today, we classify the different solutions of ETH staking service and briefly explain each type of solution’s advantages and disadvantages. Hope it can help you to choose the appropriate staking service.
There are 4 common staking solutions:
Self-run node: Users take full self-control for running the client of the execution layer (formerly Eth1) and the consensus layer (formerly Eth2) to maintain their own node and receive the staking rewards.
Full custody: A trusted custodian controls your funds, but it allows users to stake less than 32 ETH
Custodial staking pool: Based on custodial staking, it offers tokens which represent user’s staked ETH to solve the liquidity problem that is caused by long-term lock-up staking.
Staking-as-a-Service custody: Users keep control over their staked ETH and rewards and jointly manage the validator nodes with service providers through 2 sets of keys.
The solution of a self-run node needs you to stake at least 32 ETH, while it also requires the technical skill, time and expertise of node operation. Participants receive the staking reward by continuous operation, with full control of their asset.
The self-run node allows users to have full control over their asset, which removes the risk of centralized staking. However, the expertise requirement and the 32 ETH threshold block the ordinary users.
Staked, a US staking service provider, had two slashes in February 2021 and nearly 100 validators got penalized. The public realized the high technical requirements for self-run nodes
Solution of the self-run node is geeks' niche, because it meets the decentralized validators expectation. The official guidelines for self-run node can be found at: https://launchpad.ethereum.org/
Users’ staked ETH are controlled by a trusted custodian which operates and manages the validator nodes on the beacon chain. At the same time, the service provider charges a small amount of users’ staking rewards as service fees.
Users do not need to worry about the validator's operation and maintenance since full custody service providers will take care of these things. However, the assets are centrally hosted, if the custodian is attacked, the user's assets will be at risk. Meanwhile, users are unable to know the staking details, such as the uptime of the validator omde and detailed info about revenue, penalties… The user is not even sure whether their assets are used for staking, therefore the reputation and brand of a custodian are extremely important.
Full custody is provided by institutions with asset custody service, such as exchanges like Binance, Coinbase, Kraken, and some centralized wallets. It supports small amounts staking (less than 32 ETH), because custodians will combine different users’ assets to reach the 32 ETH threshold.
Custodial staking pool
Compared to full custody, custodial staking pools not only support small amount staking (less than 32 ETH), but also solve the liquidity problem that is caused by long-term lock-up staking. Custodians offer ERC20 tokens, which represents their staked ETH, on the Ethereum mainnet for stakers. These tokens have the similar value with ETH on the Ethereum mainnet and also can be freely traded in the market.
Common ETH staking pool tokens:
BETH - offered by Binance
stETH - offered by Lido
aETH - offered by Ankr
vETH- offered by Bitfrost
Custodial staking pool makes it easy for users to participate in staking and no need to worry about validator node operations and maintenance. Meanwhile, it allows users to stake less than 32 ETH and solve the liquidity of long-term ETH lockups.
Notably, the custodial staking pool solution is still based on full custody, even though it has applied technologies, like multi-signature and smart contracts to try to manage assets in a decentralized way. The asset security, information transparency, reward details and centralization risks are still needed to be aware.
Custodial staking pools solve liquidity issues, but also bring new problems and risks. Different staking pools utilize different algorithms that lead to higher understanding cost and discount on token. Staking pool token enhances DeFi's composability while also raising potential risk.
Staking-as-a-Service custody allows users to take full control over their staked ETH. Compared to self-run nodes, staking-as-a-service custody draws on the third-party node service provider to operate and maintain nodes and ensure the users' asset is self-controlled.
Each validator node has two sets of keys, namely, validator key and withdrawal key. The validator key is used to validate the blocks, and the other for retrieving the deposited ETH and revenue.
These two keys can be saved separately through staking-as-a-service custody. The withdrawal key is kept by the user within their decentralized wallet; while the validator key is imported into the node client by a third-party node service provider for node maintenance.
Advantages of the staking-as-a-service custody solution:
Ownership of the assets belong to users, and the service provider are unable to manipulate user's deposit and revenue
Users can check the validator node on the chain, and the online rate, APY and accumulated revenue will show in real time.
Since users control the assets by themselves, the risk posed by third-party service providers is limited. In other words, the biggest potential loss comes from the offline penalty and slash that service providers may suffer during the node maintenance. When Shanghai upgrade enables the withdrawal function, users can retrieve the deposited ETH and revenue.
Staking-as-a-Service custody guarantees that users have full control over their assets and no need to worry about node operation and maintenance services, although it is not fully decentralized and doesn’t support users to stake less than 32 ETH. Staking-as-a-Service custody is a good option for large ETH holders with high security requirements.
For now, InfStones, Staked.us, etc. are the common staking service providers who offer Staking-as-a-Service custody service.
If you want to stake less than 32 ETH, staking pools are recommended. When choosing pools, the service provider brand, the token they offer and ETH discount should all be considered.
If you want to stake more than 32 ETH and have expertise to maintain node operation, a self-run node is a good choice.
If you want to stake more than 32 ETH but do not want to spend your time on node operation and maintenance, Staking-as-a-Service custody is recommended.
Each staking solution has its pros and cons. Factors such as the asset security and the amount you’d like to stake should be taken into account when finding an appropriate staking solution that fits you.
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